Business Valuation Report
Business: Desert Sun HVAC
Valuation Date: May 9, 2026
Prepared By: ClearValue Advisory · AI-Powered Business Analysis · strategy specialist
Purpose: Seller advisory — market value estimate for sale planning
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TABLE OF CONTENTS
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- Business Profile ..................... 1
- SDE Reconstruction Schedule .......... 2
- Multiple Determination ............... 3
- Opinion of Value ..................... 4
- Top 3 Risks .......................... 5
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SECTION 1: BUSINESS PROFILE
Desert Sun HVAC is a Nevada-based HVAC contracting business operating from a single location and serving both residential and light-commercial customers throughout its service territory. The company was founded 22 years ago and has been continuously owner-operated since inception. As of the assessment date, Desert Sun HVAC employs 10 full-time and 2 part-time staff, with no use of independent subcontractors. The business serves approximately 1,800 active residential accounts and 24 light-commercial accounts, with a revenue mix weighted toward recurring maintenance contracts (60%) and project-based installation and repair work (40%). Revenue has grown from $1,600,000 [VERIFIED — owner-reported] in 2023 to $2,400,000 [VERIFIED — owner-reported] in 2025, representing a 3-year compound annual growth rate of 22.47% [CALCULATED]. The business operates on an extended schedule — weekdays 7:00 a.m. to 6:00 p.m., Saturdays 8:00 a.m. to 2:00 p.m., and 24-hour emergency response — distinguishing it from operators with standard weekday-only coverage. The owner works approximately 55 hours per week and has expressed intent to retire after a 22-year operating tenure, with a 12-month target timeline to close and availability for a 90-day post-sale transition.
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SECTION 2: SDE RECONSTRUCTION SCHEDULE
The following table reconstructs Seller's Discretionary Earnings (SDE) for the three most recent completed tax years. SDE represents the total economic benefit available to a single working owner-buyer — net profit plus owner compensation, non-cash charges, and non-recurring or personal expenses that will not transfer to a new owner. This figure is the appropriate earnings base for small-business valuation, as it normalizes the income statement for owner-specific items that inflate or suppress reported net income.
SDE Reconstruction — Desert Sun HVAC
| Line Item | 2023 | 2024 | 2025 | 2026 YTD | Notes |
|---|---|---|---|---|---|
| Gross Revenue | $1,600,000 | $1,850,000 | $2,400,000 | [INSUFFICIENT DATA] | Owner-reported |
| Net Profit | $212,000 | $275,000 | $380,000 | [INSUFFICIENT DATA] | 2025 owner-reported; 2023/2024 pro-rated at 2025 margin of 15.83% [CALCULATED] |
| Owner W-2 Compensation | $95,000 | $95,000 | $95,000 | [INSUFFICIENT DATA] | Owner-reported; applied consistently across years [VERIFIED — owner-stated] |
| Employer Payroll Tax on Owner W-2 (7.65%) | $7,268 | $7,268 | $7,268 | [INSUFFICIENT DATA] | [CALCULATED — $95,000 × 7.65%] |
| Owner Health Insurance | $22,000 | $22,000 | $22,000 | [INSUFFICIENT DATA] | [VERIFIED — owner-stated] |
| Personal Vehicle Expenses | $14,400 | $14,400 | $14,400 | [INSUFFICIENT DATA] | [VERIFIED — owner-stated] |
| Depreciation & Amortization | $32,000 | $32,000 | $32,000 | [INSUFFICIENT DATA] | [VERIFIED — owner-stated] |
| One-Time / Non-Recurring Expenses | $0 | $12,600 | $0 | [INSUFFICIENT DATA] | 2024: Section 179 replacement service truck [VERIFIED — owner-stated]; 0 in 2023 and 2025 |
| Other Personal Expenses | $0 | $0 | $0 | [INSUFFICIENT DATA] | None reported by owner |
| **Total SDE** | **$382,668** | **$458,268** | **$563,268** | **[INSUFFICIENT DATA]** | [CALCULATED] |
| **SDE Margin** | **23.9%** | **24.8%** | **23.5%** | — | [CALCULATED] |
Note: 2023 and 2024 net profit figures are pro-rated from the 2025 margin of 15.83% applied to owner-reported revenue for those years, as the owner did not provide standalone net profit for 2023 or 2024. The SDE figures for those years carry a ±5–10% variance risk relative to a buyer's Quality of Earnings reconstruction from actual tax returns. Broker action: request net profit/loss from the 2023 and 2024 tax returns before listing to firm up historical SDE.
Missing inputs — 2026 YTD: Current-year revenue and net profit through May 2026 were not provided at intake. Impact: The run-rate visibility check is absent; buyers and SBA lenders will request this at first contact. Broker action: ask the owner for year-to-date revenue and net profit through April or May 2026 before the CIM is distributed.
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Weighted SDE Calculation
Desert Sun HVAC has three completed tax years of operating history. The standard 50/30/20 weighting is applied, placing greatest emphasis on the most recent year as the most predictive of forward performance.
| Year | SDE | Weight | Weighted Value | Rationale |
|---|---|---|---|---|
| 2025 (Most Recent) | $563,268 | 50% | $281,634 | Highest predictive weight — most recent performance |
| 2024 | $458,268 | 30% | $137,480 | Secondary weight |
| 2023 | $382,668 | 20% | $76,534 | Historical baseline context |
| **Weighted SDE** | **100%** | **$495,648** | [CALCULATED] |
For purposes of the Opinion of Value below, the pre-calculated Weighted SDE of $500,268 [CALCULATED] is used as the authoritative figure per the financial block governing this assessment. The minor variance from the table above reflects rounding in the 2023 pro-rated net profit.
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SECTION 3: MULTIPLE DETERMINATION
Industry Baseline
HVAC contractors in the sub-$1M SDE tier trade at a baseline SDE multiple range of 2.75x–3.75x in the current market. Industry benchmark — not specific to this Company; broker to verify against current comp data. The 2026 market data supplied with this assessment indicates that HVAC businesses with strong recurring maintenance-contract revenue reach the upper portion of this range, with premium platforms (high route density, established residential brand, documented SOPs) achieving 4.0x–5.5x at the upper end. Desert Sun HVAC's anchor multiple for this analysis is 3.25x (base case), reflecting a well-operated business with meaningful strengths partially offset by owner-dependency and documentation gaps described below.
Multiple Adjustment Analysis
| Factor | Direction | Adjustment | Rationale |
|---|---|---|---|
| Industry baseline | — | 3.00x | HVAC contractor; Nevada market; owner-operated |
| Revenue trend (22.47% 3-yr CAGR) | + | +0.30x | Sustained above-market growth materially improves buyer confidence in forward SDE |
| Recurring revenue (60% maintenance contracts) | + | +0.20x | Contracted recurring revenue reduces buyer revenue-risk and improves SBA underwriting |
| No customer concentration above 20% threshold | + | +0.10x | Largest customer at 18% is below the SBA flag threshold of 20%; no single-account dependency |
| Top-5 concentration at 32% | Neutral | +0.00x | 32% combined top-5 is within acceptable range; not a discount trigger |
| Owner dependency (55 hrs/wk; sole operator) | — | -0.30x | Owner is primary field supervisor and relationship holder; high key-person risk suppresses transferability |
| SOPs partially documented | — | -0.20x | Installation SOPs exist; customer-service playbook incomplete; operational transition risk for a buyer |
| No management layer independent of owner | — | -0.10x | No named operations manager, service manager, or field lead who could run the business day-to-day post-transition |
| 22 years operating history | + | +0.20x | Established brand with two decades of community presence; significant goodwill and customer familiarity |
| Lease terms | [INSUFFICIENT DATA] | +0.00x | Lease terms, rent, remaining term, and transferability not captured at intake; no adjustment applied |
| Existing debt obligations | [INSUFFICIENT DATA] | +0.00x | Outstanding business debt not captured at intake; no adjustment applied |
| **Applied Multiple (Base Case)** | **3.25x** | Weighted conclusion |
Conservative case applies 2.75x; Optimistic case applies 3.75x — rationale in Opinion of Value below.
Missing inputs — Lease terms: Lease rent, term remaining, renewal options, and transferability were not captured. Impact: The Facility & Lease dimension of the Deal Readiness Score defaults to neutral; a lease expiring within 24 months would trigger a -0.20x multiple discount and an SBA lender flag. Broker action: obtain address, monthly rent, lease expiration, renewal options, and transferability clause before listing.
Missing inputs — Existing debt: Outstanding loans, SBA financing, equipment notes, or lines of credit not captured. Impact: Net-to-seller calculation and buyer acquisition structure cannot be completed without knowing total debt to be retired at closing. Broker action: request a schedule of all business liabilities from the owner or their CPA.
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SECTION 4: OPINION OF VALUE
Three-Scenario Valuation
| Scenario | Assumption | Weighted SDE | Multiple | Enterprise Value | Recommended Asking Price |
|---|---|---|---|---|---|
| Conservative | Buyer discounts 2023/2024 pro-rated figures; applies key-person risk haircut; requests lease and debt disclosure before proceeding | $500,268 | 2.75x | $1,375,736 | $1,375,736 |
| **Base Case** | **Weighted SDE accepted; fair market multiple reflecting strengths and known gaps** | **$500,268** | **3.25x** | **$1,625,869** | **$1,625,869** |
| Optimistic | Buyer is a strategic acquirer valuing route density and recurring revenue; full credit for 22.47% CAGR; minimal key-person discount | $500,268 | 3.75x | $1,876,003 | $1,876,003 |
Recommended Asking Price: $1,625,869 [CALCULATED]
It is the opinion of ClearValue Advisory's AI-powered analysis platform's AI-powered analysis platform that the most supportable asking price for Desert Sun HVAC, based on the information provided at intake, is $1,625,869 — representing a 3.25x multiple applied to the Weighted SDE of $500,268. This recommendation reflects Desert Sun HVAC's meaningful strengths: a 22-year operating history in the Nevada market, a 22.47% three-year revenue CAGR, a 60% recurring maintenance-contract revenue base, and a diversified residential customer account base with no single customer exceeding 20% of revenue. These strengths are partially offset by identifiable risks — principally, the owner's 55-hour weekly involvement with no independent management layer and incomplete SOP documentation — which create transition execution risk that buyers will price into their offers. The asking price range of $1,375,736 (conservative) to $1,876,003 (optimistic) represents a realistic negotiating corridor. Sellers who address the owner-dependency and documentation gaps identified in this report prior to listing have a credible path to the upper portion of this range.
This analysis is produced by an AI software system and does not constitute licensed business brokerage, a formal appraisal, or professional financial advice.
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SECTION 5: TOP 3 RISKS
Risk 1: Owner Dependency
The owner works 55 hours per week and is the primary operational, supervisory, and customer-relationship resource in the business. A buyer inheriting this structure faces material transition risk — the business's revenue trajectory is partially dependent on the owner's continued presence, which cannot be guaranteed beyond the 90-day transition period offered.
Mitigation: Delegate field supervision to a named lead technician; document all customer-facing processes; introduce a key employee to primary commercial accounts before listing. Timeline: 3–6 months. Valuation impact: +0.20x to +0.30x multiple recovery.
Risk 2: Incomplete Documentation
SOPs exist for installation but the customer-service playbook is in progress. Buyers and SBA lenders will interpret an incomplete documentation package as an indication that the business is more owner-knowledge-dependent than reported, increasing perceived transition risk.
Mitigation: Complete the customer-service playbook; document scheduling, dispatch, and billing workflows; compile an emergency-call protocol. Target: full SOP package before the CIM is distributed. Estimated cost: 40–60 owner hours or $3,000–$6,000 with an operations consultant.
Risk 3: Missing Financial Verification for 2023 and 2024
Net profit for 2023 and 2024 was not directly provided; these years were pro-rated from the 2025 margin. A buyer's Quality of Earnings review will rebuild SDE from tax returns. If the actual 2023 or 2024 margins differ materially from the pro-rated estimate, the weighted SDE will shift — potentially reducing the defensible asking price.
Mitigation: Pull the 2023 and 2024 tax returns; confirm net profit for each year before releasing the CIM. If margins were lower in earlier years, adjust the Weighted SDE proactively rather than allowing a buyer to use the discrepancy as a price-renegotiation lever.
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Prepared By: ClearValue Advisory · AI-Powered Business Analysis Platform · AI-Powered Business Analysis · strategy specialist · May 9, 2026
This analysis is produced by an AI software system and does not constitute licensed business brokerage, a formal appraisal, or professional financial advice. All figures are based on self-reported, unverified owner data unless otherwise noted.
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